Enquest advances Shetland plans but warns on higher windfall tax
ENQUEST has warned that expansion of the windfall tax on North Sea operators threatens the UK’S long-term objectives as it confirmed plans to push ahead with the creation of a carbon capture and storage (CCS) facility at its Sullom Voe Terminal in Shetland.
In an operational update, Enquest said full-year oil and gas production is expected to come in around the mid-point of its previous forecast of 44,000 to 51,000 barrels of oil equivalent (boe) per day. Average production during the 10 months to the end of October was 46,593 boe per day, up 5.2 per cent on the same period a year earlier.
In September, Enquest joined the long list of oil and gas producers reporting sharp gains on the back of surging commodity prices. Revenues during the first half were up by 82%, while profits surged 137% to $416.2 million (£359m).
The sharp upturn in profits across the sector, driven by shortages created by disruptions from the Russian invasion of Ukraine, led the UK Government to introduce an additional 25% levy on oil and gas profits in May of this year. As part of the Autumn Statement earlier this month Chancellor Jeremy Hunt announced that the windfall tax will be increased to 35% from January, and the scheme will be extended by two years to March 2028.
Despite reiterating investment plans for the company’s Magnus and Kraken fields, Enquest chief executive Amjad Bseisu questioned the wisdom of expanding the windfall tax.
“While the recently-announced increase and extension of the duration of the energy profits levy is particularly disappointing and threatens the delivery of the UK’S twin objectives of long-term energy security and decarbonisation, we remain committed to the UK North Sea and delivery of value to our shareholders,” he said.
Enquest cut its debts to $750 million as of September 30, down from $880m three months earlier. However, the company said the increase in the windfall tax will impact its free cash flow and further deleveraging, with the first energy levy payment on account due in December 2022.
“Looking ahead towards 2023, we will maintain our disciplined approach, focusing on low-cost and quick payback organic opportunities as we plan our well work programmes for Magnus, Pm8/seligi and Golden Eagle,” Mr Bseisu said. “We continue to make good progress in maturing our infrastructure and new energy business in a capital-light manner.”
Although Enquest has some operations in Malaysia, the majority of its assets are in the North Sea with approximately 80% of its cost base in in sterling.
The company further revealed that it has submitted applications to the North Sea Transition Authority for two licences at Sullom Voe to create a “flexible storage hub” capable of holding up to 10 million tonnes of CO2 annually from emitters in the UK, Europe and further afield. Permits are expected to be awarded in the first quarter of next year.
In addition to CCS, Enquest is also moving forward with plans to overhaul Sullom Voe and connected offshore infrastructure to take advantage of renewable development projects in the area. These include nearly 2.8GW of nearby offshore leases awarded in the recent Scotwind licensing round.
The group added that it is continuing to mature a number of global scale decarbonisation opportunities, including green hydrogen and electrification.
Mr Bseisu added: “Building on our excellent operational performance and deleveraging during the first half of the year, we are on track to deliver on our 2022 targets.
“Supported by the successful refinancing of our capital structure, we continue to progress towards our net debt to EBITDA target of 0.5x, which will enable us to consider our broader capital allocation priorities, including potential returns to shareholders in the longer-term.”